Accounting, Payroll & Pension Issues/Room & Board
QUESTION: Hi, I am the director of a small-non profit that provides room and board to its employees as a working fringe benefit. It is not a requirement of the job. We pay our employees $26,000 a year. However, when we deduct the room and board expense from employee paychecks (which we don't tax), their take-home cash is only $14,000–which is below minimum wage. Am I in violation of the minimum wage laws?
Thanks for your help!
ANSWER: A working fringe benefit is not deducted from wages. If it is a fringe benefit it is in addition to wages and you are allowed to deduct it from your taxes at the end of the year as an employee benefit. If you deduct it from their payroll it becomes part of their wages and not a benefit.
You should do this one of two ways.
1. You should at least be paying minimum wage for the work completed. You could pay them minimum wage for their work and let them know that the balance is for room and board. This is legal to do.
2. You could draw up a contract with the employee for them to sign that they will be paid their wages 12,000 in wages and 14,000 in room and board for their work. This is legal if a contract is signed as the room and board is considered part of their wages.
[an error occurred while processing this directive]---------- FOLLOW-UP ----------
QUESTION: Thanks for the helpful and clear explanation!
One follow-up question, if I do the second method (draw a contact that specifies $12k in cash wages and $14k in room and board), do I have to tax the room and board?
Non-Taxable Room and Board
If an employer provides an employee with lodging and meals, it is not considered a taxable fringe benefit to the employee under a specific set of criteria. First, the room and board must be provided on the employer's work premises. A common example of this is when a family hires a live-in nanny. The nanny lives in the home and eats meals there. The second criterion is that the lodging must be intended for the employer's benefit. This means it is easier for the employer to have an employee on site at all times than live off site. The final criterion is that the employee must accept the room and board as a condition of employment. In other words, the employee is required to accept the room and board to get the job. If all of these conditions are met, the employee does not have to pay tax on the value of the free accommodations
So your contract should read as a condition of employment I understand that the room and board provided is a condition of employment and is provided as part of my compensation for working.
If the condition above does not fit than you should go with option 1 and it should all be taxed as regular wages. It would than be a taxable benefit.